Executive Fraud Blog

"FHA-backed loans are being touted for their "safety" -- to consumers and the financial system. "If we can get people into the FHA rather than to some of the other kinds of loans they have, everybody will be better off," argued Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee, during a hearing this year.

But before the FHA's loan spigots are opened up, a little due diligence by the political sector is in order. The FHA's recent credit history shows it is far from the prudent institution it is said to be. By its own estimate, next year the agency expects to be in the red, paying out more for defaulted loans than borrowers pay to it in insurance premiums. "Because of adverse loan performance," the FHA states in its budget submission for 2008, "total costs exceed receipts on a present value basis, and therefore would require appropriations . . . to continue operation."

The agency poses more than just a threat to taxpayers. The collapse of whole segments of the housing market can be traced to FHA-subsidized mortgage products. Despite its decreasing market share, the FHA appears to have played a significant role in the current mortgage "meltdown" attributed to subprime loans."